World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Thursday, December 23, 2010

Equity futures are down slightly this morning before the open. The dollar is higher, the Euro looks sick, bonds are roughly even, oil continues to sit on the 50% retrace Fibonacci at $90.53 a barrel, and gold is down about $10 an ounce at $1,377.

Durable Goods orders came in at -1.3% in November, this is worse than the consensus that was looking for -1.0%, but it is better than the -3.3% in October. Here’s Econoday:

HighlightsToday's durables report came in mixed but core orders may be back on an uptrend. Durables orders in November declined 1.3 percent, following a revised 3.1 percent drop the prior month. However, the latest was a little more negative than analysts' expectation for a 1.0 percent fall. Weakness was led by a drop in civilian aircraft orders. However, excluding transportation, new orders for durables rebounded 2.4 percent after a 1.9 percent contraction in October. Strength in core orders was broad based.

Outside of transportation, strength was widespread, led by a 5.8 percent jump in computers & electronics, with electrical equipment up 5.6 percent and with primary metals up 3.0 percent. Also up were fabricated metals, machinery, and "other."

Business investment in equipment is showing signs of strength. Nondefense capital goods orders excluding aircraft in November rebounded 2.6 percent after falling 3.6 percent the prior month. Shipments for this series gained 1.0 percent, following a 1.2 percent contraction in October.

Outside of nondefense aircraft, today's report is notably positive. It looks like manufacturing is regaining some strength in the fourth quarter.

What’s so sad about this report to me is that Boeing represents such a large segment of the report! It means that our manufacturing base is narrow as we obviously make little here in the U.S. compared to what we used to make, especially in relation to the size of our population. Any way you want to slice it, the reality is that we are best at manufacturing paper money and derivatives.

Personal Income & Outlays are supposedly up .3% in November and up 3.8% year over year. Again, here’s a summary from Econoday:

HighlightsWhile income growth slowed in November after a sizeable October boost, consumer spending was relatively healthy heading into the holiday shopping season. As in recent months, core inflation is quite soft and still below the Fed's target range. Personal income in November rose 0.3 percent, following a 0.4 percent boost in October. The market consensus had called for a 0.2 percent improvement. However, the wages & salaries component was sluggish, edging up 0.1 percent after jumping 0.5 percent in October.

The consumer continued to open up his wallet as in recent months. Personal consumption expenditures advanced 0.4 percent, following a 0.0.7 percent gain in October. For the latest month, strength was led by a 0.7 percent monthly surge in nondurables. Only about 0.2 percentage points was price related. Durables slipped back 0.1 percent while services increased 0.4 percent.

Year on year, personal income for November posted a 3.8 percent gain, compared to 3.9 percent in October. PCEs growth edged up to 3.8 percent in from 3.7 percent in October.

On the inflation front, the PCE price index increased 0.1 percent in November, following a 0.2 percent rise the month before. The core rate nudged up 0.1 percent after no change in October. On a year-ago basis, the headline number in November was up 1.0 percent while the core was 0.8 percent.

While personal income growth has oscillated somewhat, consumers appear to be relatively confident about the economy as spending has been on a more stable uptrend. This is good news for fourth quarter growth and for moving forward.

Weekly Unemployment Claims came in at 420,000, which was exactly the same as the week prior and it was also right on consensus:

HighlightsThe job market is improving but only at a moderate pace. That's the indication from initial jobless claims which for a third time in a row held little changed, at 420,000 in the December 18 week. The four-week average ended six weeks of improvement, up 2,500 to a 426,000 level that's still about 10,000 lower than the month-ago comparison.

Continuing claims fell steeply, down 103,000 to 4.064 million in data for the December 11 week and knocking another tenth off the insured unemployment rate to 3.2 percent. The four-week average of 4.156 million is about 150,000 lower than the month-ago comparison.

Month-ago comparisons in this report point to a month-to-month increase, though only a moderate increase, for December payroll growth.

So, no change is an improvement? Everyone wants to spin the positive. CNN’s headline says, “Jobless Claims Fall Again.” Riiiight… since last week was revised higher once again, up 3,000 from the original report as happens every week, then this report can be said to look better – however compared to the initial report, this was exactly the same showing no improvement. In fact, when you remove seasonal adjustments, the number rose more than 5,000. Whatever, it’s ridiculously high and is an indication that the economy STILL is losing jobs.

Consumer Sentiment and New Home Sales are released later this morning.

Everywhere you look the spin is positive and the risk trade is obviously on. It seems way too one sided to me with most people now expecting inflation on the back of money pumping. Getting strong consensus in one direction is a sure way to produce the exact opposite. The holidays will soon be over and so will wave 5 up, but not right now. The McClellan Oscillator is positive again, and until it turns negative the recent Hindenburg will likely not deliver declines, however, keep it in mind as it remains in effect through April 15th.

Markets are closed tomorrow, I hope everyone enjoys time with your families and have a Merry Christmas!

Wednesday, December 22, 2010

Equities are higher this morning with bonds higher, the dollar higher, oil higher, and gold also higher.

Oil is pushing the $90.53 level which is a 50% retracement of the ’08 decline and thus is a very important level for oil – and for the economy:

The psychotic Mortgage Banker’s Association’s Purchase Applications Index fell another 2.5% in the past week with Refinancing activity falling a crazy 24.6%... in one week! That brought their overall index down by 18.6% - here’s Econoday:

HighlightsThe number of buyers filing mortgage applications fell 2.5 percent in the December 17 week, the second straight decline to show no significant improvement from a month ago. The report warns that home sales are likely to remain "relatively weak" over the next few months.

Some of the softness is tied to rising mortgage rates which are really cutting into refinancing volume. Refinancing applications fell 24.6 percent in the week and are back to levels last seen in April. The average 30-year rate was 4.85 percent in the week, up one basis point from the prior week and up 35 basis points from one month ago. Next data on the housing sector are existing home sales for November, to be posted at 10:00 a.m. ET.

Wow, if a one basis point rise in mortgage rates results in that type of drop, it’s going to get real interesting when rates finally normalize – and at some point they will.

The third and final revision to Q3 GDP data came in at 2.6%. This is a revision higher than the previous 2.5% trumped up report, but not anywhere near as high as expectations which were looking for 3.0%. It’s all false and all fraud, but here’s Econoday’s summary:

HighlightsThe economy got an upgrade this morning from the Commerce Department but it was notably below expectations. For the second month in a row, third quarter GDP growth was revised up, this time to 2.6 percent annualized from the prior estimate of 2.5 percent. Analysts had projected a 3.0 percent final estimate.

The upward revision was primarily due to a higher estimated for inventory investment with small improvements to net exports and residential investment also contributing. Softening the upgrade were downward estimates for personal consumption, nonresidential fixed investment, and government purchases.

The biggest disappointment of the report is that demand numbers were revised down. Final sales of domestic product were lowered to 0.9 percent from last month's estimate of 1.2 percent. Final sales to domestic purchasers were downgraded to 2.6 percent from the second estimate of 2.9 percent for the third quarter.

Absolute strength within final sales is still found in PCEs, revised down to an annualized 2.4 percent boost in the third quarter from the prior estimate of 2.8 percent. Investment in equipment & software gained 15.4 percent versus the previous third quarter estimate of 16.8 percent. Government purchases advanced 3.9 percent, compared to 4.0 percent for the prior third quarter figure. Absolute weakness was found in residential and nonresidential investment. Also, net exports worsened.

Year-on-year, real GDP in the second quarter is up 3.2 percent, compared 3.0 percent in the second quarter.

On the inflation front, the GDP price index's growth rate for the third quarter was nudged down to 2.1 percent annualized from the prior estimate of 2.3 percent. The consensus forecast was for 2.3 percent.

Probably the best thing you can say about today's report is that it reflects old data. The mix between final sales and inventories is not as good as expected. But more recent economic data have been far more upbeat. Most likely, the final figures for third quarter GDP will not have a significant impact on estimates for fourth quarter GDP.

On the news, equities eased but remained positive.

Again, our GDP is grossly overstated as it is based largely on financial engineering which itself is built upon fraud. I’m not talking a few percentage points either, I’m talking about a very sizable chunk of it.

I note that Bloomberg is running an article on it that states that the “Price Rise is Slowest in 50 years.” Again, that’s just flat out fraudulent – GDP benefits from low inflator numbers, it makes the economy appear stronger than it really is. So if they’re using the lowest deflator numbers of the past 50 years while everything but housing is soaring in price, then the gap between reality and the fantasy that is our government’s GDP number is gapping wider.

Existing Home Sales were expected to come in at 4.75 million for the month of November with October coming in at only 4.43 million. The actual report for November just came in at 4.68 million, slightly below expectations. The FHFA Price Index rose .7% in the month, but is down 3.4% year over year.

New Home Sales will be reported tomorrow along with a slew of other data, again markets will be closed on Friday.

Tuesday, December 21, 2010

Equity futures continue to drift higher this morning on extremely low volume. The dollar is down, bonds are up slightly, oil is again pressing $90 a barrel, and gold is down a little while food commodities continue to climb into the stratosphere.

Good thing that there’s plenty of money to placate one in seven Americans with food stamps. Otherwise there just might be hard enough times to cause an uprising that could stand a chance of brining meaningful change instead of meaningful money destruction:

PICNEW YORK (CNNMoney.com) -- The use of food stamps has increased dramatically in the U.S., as the federal government ramps up basic assistance to meet the demands of an increasingly desperate population.

The number of food stamp recipients increased 16% over last year. This means that 14% of the population is now living on food stamps. That's about 43 million people, or about one out of every seven Americans.

In some states, like Tennessee, Mississippi, New Mexico and Oregon, one in five people are receiving food stamps. Washington, D.C. leads the nation, with 21.5% of the population on food stamps.

"The high unemployment rate caused the high participation rate," said Dottie Rosenbaum from the Center for Budget and Policy Priorities, a think tank.

But it's not just the nation's stubbornly high unemployment rate of 9.8% that's driving the increase in food stamp use. Some states are expanding their definitions of poverty to include more people.

At the same time, the 2009 American Recovery and Reinvestment Act boosted annual funding to the nationwide food stamp program, known as the Supplemental Nutrition Assistance Program, by $10 billion.

The average recipient receives $133 in food stamps per month, according to the U.S. Department of Agriculture. That amount varies from state to state; in Hawaii the average is $216, while it's $116 in Wisconsin.

But the Recovery Act funding increased the maximum food stamp benefit by 13.6%, which translates to about $20-24 dollars per person per month.

The U.S. government considers food stamps to be effective stimulus for the economy, because the recipients usually spend them right away.

And see, the media gets to tout that we “only” have 9.8% unemployment instead of the more than 17% or more that exists in reality. Sigh…

Not to worry because the “Fed” in all their glorious wisdom will continue to kill the value of your money by not only buying up every single piece of worthless debt in America, but they will provide “liquidity” in the form of “Swap lines” with the world’s other central banks so that they too can keep the dollar killing money pump going:

Dec. 21 (Bloomberg) -- The Federal Open Market Committee authorized the extension through Aug. 1 of its temporary dollar liquidity swap arrangements with the European Central Bank and the central banks of Japan, Canada, Switzerland and the United Kingdom.

The arrangements, established in May, had been authorized through January, the Federal Reserve said today in a statement.

One world government? Seems we already have one and Bernanke is the figurehead world President. Don’t worry about the debt in Europe though, we have that covered because Americans can afford it.

No economic data today, just POMO after POMO. There will be two POMO’s today, should be more than $10 billion plus. Isn’t that special? Why I’ll bet you’re feeling more wealthy already.

Meanwhile stocks appear to me to be carving out another potential rising wedge pattern in the short term…

…That’s inside of another rising wedge pattern in the longer term:

I hope you’re enjoying time with your families in front of the holidays, don’t follow the debt example of our national leaders and be sure to teach your children well…

Monday, December 20, 2010

Equity futures are up this morning as the buildup of tension on the Korean Peninsula with ongoing military exercises has fortunately so far not resulted in another spat of violence. The dollar is unchanged, bonds are higher, oil is flat, and gold is higher.

Expect light volumes and tons of POMO money this shortened holiday week, a week that is traditionally bullish – pour tens of billions onto the fire and you can see food commodities, oil, and momentum stocks all moving straight up in a ridiculous and reckless manner. Sentiment is far too bullish with most measurements near historic bullish levels, stochastic indicators are overbought on all timeframes through monthly, insider selling is still extreme as it appears that distribution is occurring in a wave 5 movement, and the VIX closed on Friday at the lowest level since last April which also shows that complacency is mounting:

The Chicago "Fed" National Activity Index fell further in the month of November, falling from -.28 to -.46. This negative report fails to backup other “growth” indicators that are being fluffed up by monetization and manipulation. Here’s a quick Econoday summary:

HighlightsThe Chicago Fed's national activity index slipped to minus 0.46 from October's minus 0.25 (minus 0.28 first reported). Three of four components fell in November including employment. The three-month moving average improved slightly to minus 0.41 yet still suggests that U.S. growth is below historical trend. Inflation indications point to subdued pressure over the coming year.

Gee, I guess we need to pump the POMO a little harder, eh?

Very little economic data is reported through tomorrow, then we’ll get the 3rd and final trumped up rendition of Q3 GDP, Existing Home Sales, then Durable Goods and New Home Sales on Thursday. All markets are closed on Friday but banks will be open.

MY TAKE FOR 2011…

With the Private banks running the country, the money pumping will continue as in their eyes inflation must occur for their “business” model to work. This monetization is slowly eroding confidence in our money and it is already dramatically affecting the major asset classes which are; DEBT, equities, real estate, and commodities. The dollar is at the center of the wheel as all these “assets” are priced in dollars:

So, commodities are already too high, debt is already far too high, real estate is a bubble that has already burst, and equities are at extreme real valuations manipulated higher by “Fed” intervention and flat out accounting fraud. As the money pumping continues through 2011, I think that we will see one or more of these “asset” categories exhibit extreme moves under extreme stress.

Which ones and in which direction? Again, I’m not a decision maker in this regard and you likely aren’t either… thus attempting to guess is an attempt to guess the actions of others who are in a position of power. For example, we all know that Bernanke is going to monetize come hell or high water, but yet even he could be put under pressure by other decision makers eventually, and thus it makes betting on any single outcome seem foolish to me.

Should he continue to print unfettered and the current trend of higher commodities continue, then you will see dramatic margin compression for businesses and for the cost of living. There is no free ride, one of these asset categories will give way… you can have higher equities, but the tradeoff might be that you force either the dollar lower, or you force the interest rates for debt higher (or both). So, I think we see wild swings and more volatility in reaction to the pumping and we are also getting closer to those “other events” that history shows appear within a decade of the beginning of the bursting of a credit bubble. This one began bursting in 2007, and thus it is very likely that significant “other events” occur before the year 2017 is over.